Does Corporate Insider Trading Predict Natural Disaster Outcomes? Evidence from Tropical Storms in the US

This study examines the insider trading profitability of the United State (US) firms, during calendar time windows that capture tropical storms over the period 1988-2017. Using event study and multivariate regression analyses, we analyze cumulative abnormal returns following insider trades as a proxy for ex-ante information cues in pre and post-storm periods. We find that tropical-storm related information provides profitable trading opportunities for corporate insiders, notably higher in the pre-landfall period and higher for executives. Our results strongly suggest that insiders are more attentive to publicly available meteorological forecasts and have superior information processing abilities compared to general investors. During periods of high storm uncertainty, investors should pay close attention to insider trades to garner potential (actual) financial impacts of the storm in the pre (post) landfall period